17 March 2017

"Changes To Hydrocarbons Law To Enhance Operations In The Upstream Sector"

Kalo & Associates


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Founded by Perparim Kalo in 1994 KALO & ASSOCIATES has been in the forefront of legal services in Albania and Kosovo in representing prominent business organizations and IFIs, including many Fortune 500. The Firm enjoys international reputation and is “best friend” to many international law firms and IFI-s, development agencies and embassies.
Albania is the largest exporter of crude oil in the Energy Community and is home to the largest onshore oil field in Europe (i.e. Patos Marinza).
Albania Energy and Natural Resources
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Albania is the largest exporter of crude oil in the Energy Community and is home to the largest onshore oil field in Europe (i.e. Patos Marinza). A number of foreign investors have already entered this market, yet regulation of the upstream sector is based on old and not comprehensive legislation from 1993 (amended several times), which does not reflect the latest development of the sector related to exploration and production of hydrocarbons in Albania.

In respect to this oil and gas sector, regulatory and policy developments have long been underway and discussed with relevant stakeholders as part of the overall state energy strategy. However, new amendments to the existing law no. 7746 / 1993 "On Hydrocarbons" (exploration and production), as amended (the "Hydrocarbons Law") have only been adopted on 2 Feb 2017, striving to regulate the activity of exploration and production of hydrocarbons in Albania.

The governmental objective introduced in these latest amendments, is to negotiate the terms of the Petroleum Agreements in the oil industry [the most common type of which used in Albania is a Production Sharing Agreement ("PSA")] in a fair, transparent and competitive manner, to protect Albanian natural resources (inland and offshore) which are state owned, by guaranteeing the country' national security, in line with the principles of Directive 94/22/EC of the European Parliament and of the Council "On the conditions for granting and using authorizations for the prospection, exploration and production of hydrocarbons". Based on this principles, the execution of new PSAs or share transfers in existing Petroleum Agreements can be rejected by the relevant authorities in case there is any indication of Albanian national security infringement.

Whilst the right of explorations have remained unchanged, that means that can be conducted for a period of 5 years (subject to further extension up to the utmost period of 7 years), exclusive rights to exploit hydrocarbons now can be extended up to 5 years in maximum following the initial period of 25 years. Appraisal period has been definitely separated from the exploration period.

New changes give the possibility to contractor to benefit from fiscal stability clauses, up to 12 years from production of hydrocarbons, by keeping tax liabilities at same level during the 12 years' period.

Along with the Natural Agency for Natural Resources ("AKBN") which was created back in 2006 to deal, inter alia, with hydrocarbon activities on behalf of the Albanian state and operating as a specialized institution dealing with the negotiations of the PSA, the monitoring of petroleum activities and policy-making, the new legislative amendments aim to establish a new authority in charge of all technical consultancy services, scientifically speaking. The Scientific Hydrocarbon Institute will be responsible for conducting all studies, analysis, providing consultancy services and acting as a technical opponent of proposed projects in this sector, monitoring the implementation of relevant production sharing agreements during the exploration and development of hydrocarbons in Albania, on behalf of relevant state authorities (not only in the hydrocarbon sector but also in relation to the refining, transport and trade of hydrocarbons and its by-products). In light of above changes, the competences of AKBN will be revisited and a new agency responsible for hydrocarbons (currently operating as a department of the AKBN) will be in charge of some of competences performed currently by AKBN.

While this amendments have been introduced to facilitate incoming foreign direct investment in the hydrocarbon sector, it remains to be seen whether the new rules and newly established structures will contribute to promote more exploration opportunities in Albania during 2017.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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